Onset of transit tax not yet fixed

Rules for collecting the 0.5% surcharge must still be drafted, state officials say

State officials say they are not sure exactly when the new state tax increase for Oahu's mass transit system will go into effect.

But one thing you can be sure of is the amount: It will cost you 4.7 percent at the cash register compared with 4.16 percent now.

The law, passed in 2005, allows the state to start collection with the beginning of the new year in 2007, but there is no specific date that signals the start of the new tax.

Bob Awana, Gov. Linda Lingle's chief of staff, who has been handling negotiations with the city regarding the tax, said new rules are being worked on, but no definite start date has been set.

"I doubt we will be in a position to collect it on January 1st," Awana said.

Businesses should not think the state will be ignoring it, officials warned. Tax officials are preparing to launch the new tax as soon as possible.

"We want to collect it as soon as reasonably possible," Awana said, "but we have to be in compliance with the existing law. That means modifying the computer system and the software and recognizing the surcharge as a separate tax."

The tax increase will go to fund a mass transit system for Honolulu. City officials estimated last week that the system, which will run from Kapolei to Manoa, will cost at least $3 billion.

The tax is a bit trickier than other state taxes because it is owed only on the gross proceeds on any income generated on Oahu. The regular state excise tax of 4 percent is due on any sales in the state.

The new Oahu tax definition gets complicated because of business sales between different counties. For instance, if a business on Maui sells something to a customer on Oahu, it generates a 4.5 percent (4.7 percent with compounding) excise tax, while sales to customers on Maui remain at 4 percent.

"You are going to have to do segregated accounting; also, you will have to keep a paper trail of sales," Lowell Kalapa, president of the Hawaii Tax Foundation, advised.

The state also needs to come up with rules for exporting products between Oahu and the other counties, Kalapa said.

Because the state had hoped the city would collect the tax, no rules were developed for the tax until after the Legislature adjourned in May.

Since then the state has been working to figure out the details, Attorney General Mark Bennett said.

Bennett says he is hoping the rules will soon be in place and that the tax can be collected starting on Jan. 1.

"Does it mean we will have a system up and running and we are collecting every nickel on January 1st? That is not what we are aiming for," Bennett said. "We are aiming to have the system up and running and collect the more substantial parts of the money due."

Kurt Kawafuchi, state tax director, started drafting the new rules in May, but they are not done yet, he said last week.

After the rules are written, they have to be sent out to statewide public hearings, Kawafuchi said.

Although all of that can be done by January, no one is promising that the tax will start on the first day it can be collected."It has been a longer journey than we had hoped," Awana said.

For tax critics such as Sen. Sam Slom (R, Diamond Head-Hawaii Kai), the delay just means taxpayers and businesses will save a little money.

"Every day without the tax is better than a day with the tax," Slom said.

For some business owners, the new tax will be a bigger burden because they do not plan to pass it on.

"I can't pass it along because my fees are fixed because I don't attach the GET (general excise tax) to my fees like a retail store, so I have to eat it," said Geal Fukumoto Talbert, owner of Legacy Group Hawaii, a financial consulting company.

"It is going to mean less money to buy more computers or hire another person," said Talbert, who has two full-time and two part-time employees.